Here’s an interesting table I came across the other day while I was looking for something else. Buried in the IMF’s recent report Fiscal Adjustment in an Uncertain World is a comparison of the size and impact of bank bailouts in selected countries.
It shows the addition to 2012 debt as a result of the initial bailout and how much has been recovered so far. I’ve stuck the figures on a graph with the best (or least bad) on the left and the worst on the right.
Financial Sector Support (Percentage of 2012 GDP)
Given the size of the UK’s banking sector, our bailout wasn’t as big, relative to our economy, as those of some other countries. Germany, Belgium and the Netherlands were hit by bank failures too and Germany is still sitting on larger potential liabilities than the UK. (If anyone is interested, the details of the UK’s bank bailouts are on the National Audit Office website.)
This also shows that the UK’s bank bailout wasn’t the main cause of the rapid increase in debt between 2007 and 2012. Some left-wing commentators claim that public debt, and therefore austerity, has been caused by massive bank bailouts. But considering that UK net debt rose by around 35 percent of GDP over this period, the 7 percent spent on the bank bailout, while significant, is nowhere near the whole story. Yes, the GDP collapse and rising debt were brought about by the banking collapse but they were not a direct result of the bailout.
But, while that charge may not stick in the UK, it certainly does in Ireland. If you want to know how Ireland went from having one of the lowest levels of debt in the OECD to one of the highest (See previous posts), look no further. The collapse of the unholy alliance between Ireland’s banks and property developers has blown a massive hole in the country’s finances. Ireland was a small country with some very big banks. When they fell, they took the rest of the country down with them. Ireland’s economy may be recovering but the damage done in 2008 will take a long time to clear.
The American government seems to have fared best of all. According to the IMF it has recovered most of its bailout costs. That said, the recent claim that the bank rescue will end up costing US taxpayers nothing may be a bit premature.
How long it will take to recover the outlay from Britain’s bank bailout is very difficult to say. At one point, some optimists were suggesting that the exchequer might even make a profit on the bank rescue but that looks less likely now.
Although it might have looked like a good idea at the time, taking shares in banks in return for the bailout has hitched the taxpayers’ fortunes firmly to the bankers’ wagon. To have a hope of breaking even, or even cutting its losses, the government has to be able to sell the banks and, as things stand at the moment, it will probably make a loss when it does so.
Still, it could be worse. Compared to some other countries, our bank bailouts look quite modest.
Update: The NAO puts the cost of Britain’s bank bailout at £141bn, as at March 2013. That’s £115bn in cash and £26bn contingent liabilities. At current prices, the taxpayer is sitting on a potential loss of £34bn from the reduced value of RBS and Lloyds.